Economy

As supply bottlenecks hobble pandemic recovery, IMF lowers global growth outlook, but increases projections for Latin America

The fund said it expects elevated inflation to subside to pre-pandemic levels in 2022.

The International Monetary Fund (IMF) logo is seen outside the headquarters building in Washington, U.S., September 4, 2018. Photo: Reuters/Yuri Gripas.File Photo
  • IMF’s chief economist, Gita Gopinath, signaled that the global lender is growing more concerned about persistent inflation, saying: “Central banks should be prepared to act quickly if the risks of rising inflation expectations become more material in this uncharted recovery”;
  • Regarding commodity exporters regions, such as Latin America and the Caribbean, Middle East and Central Asia, sub-Saharan Africa, IMF’s report also highlighted that growth forecasts have been revised up slightly for 2021.

Persistent supply chain disruptions and inflation pressures are constraining the global economy‘s recovery from the COVID-19 pandemic, the International Monetary Fund said on Tuesday as it cut growth outlooks for the United States and other major industrial powers.

In its World Economic Outlook, the IMF trimmed its 2021 global growth forecast to 5.9% from the 6.0% forecast it made in July. It left a 2022 global growth forecast unchanged at 4.9%. For Latin America and the Caribbean, the fund increased its expectations from 4.6%, in April this year, to 6.3% now.

Source: IMF, World Economic Outlook, October 2021.

“This modest headline revision, however, masks large downgrades for some countries,” the IMF said in the report, adding that worsening pandemic dynamics have darkened the outlook for low-income developing economies, while wealthy countries are struggling with supply disruptions.

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The IMF said it expects elevated inflation to subside to pre-pandemic levels in 2022.

But the IMF’s chief economist, Gita Gopinath, signaled that the global lender is growing more concerned about persistent inflation, saying: “Central banks should be prepared to act quickly if the risks of rising inflation expectations become more material in this uncharted recovery.”

Gopinath, speaking in a virtual news conference, said policymakers needed to be “particularly vigilant” for signs that wage inflation is spreading more broadly from certain sectors and whether rising housing prices are contributing to a de-anchoring of inflation expectations.

But she cautioned against comparisons to 1970s-style “stagflation,” noting that underlying demand was strong, and problems were mainly on the supply side.

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Global manufacturing activity has been slammed by supply-demand mismatches and shortages of key components such as semiconductors, clogged ports, and a lack of cargo containers, and a labor crunch as global supply chains optimized for efficiency remains in disarray after pandemic-induced shutdowns last year.

Regarding commodity exporters regions, such as Latin America and the Caribbean, Middle East and Central Asia, sub-Saharan Africa, IMF’s report also highlighted that growth forecasts have been revised up slightly
for 2021. “Emerging market and developing economies have been hit harder than advanced economies, on average. International Labour Organization estimates (see ILO 2021b) suggest that Latin America and the Caribbean and South Asia were among the regions where declines in working hours in 2020 were particularly large,” says the report.

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